Client: Property development company
Facility: £330,000 development finance
Purpose: Fund the early-stage build costs of a residential development
Client background: A new development company with a strategic opportunity
Our client is an established property developer with a newly incorporated development company. Having purchased two adjacent plots in a prime Edinburgh location and secured planning permission for two semi-detached houses on one of them, our client was seeking funding for the build costs.
The financing challenge: Development finance for an early-stage build
The development required £330,000 to cover the build costs, loan interest, and fees. With the plots valued at £200,000 and a projected gross development value (GDV) of £600,000 for the completed properties, the loan-to-value was 55% of GDV, a conservative ratio that would appeal to lenders.
However, several factors added complexity:
1. New company with limited trading history
Our client’s development company was newly incorporated, so it had minimal trading history. Although the client personally had extensive property experience, lenders often prefer established companies with proven track records.
2. Retained interest requirement
The client requested 12 months of retained interest, with the monthly interest rolled into the loan rather than paid from their own funds. This increases lender risk, as there is no cash flow during the build period to demonstrate that the loan can be serviced.
3. Early-stage project
Although planning permission had been secured for one plot and was pending for the second, and groundwork had been completed, the build hadn’t commenced. Some lenders prefer to finance projects at later stages, when construction risk is reduced.
4. Exit dependent on property sales
The repayment strategy relied solely on selling the completed properties. In a slower market, this could lengthen the loan term and increase lender exposure.
Solution: Securing the funding by mitigating perceived risk
Despite the challenges, the fundamentals were strong, so our strategic approach focused on emphasising them:
1. Promoting the developer’s broader experience and financial strength
Although the development company was new, the individual behind it had substantial property experience and a £2 million portfolio generating nearly £100,000 in annual rental income. We emphasised this track record to reassure lenders that they were backing an experienced developer, not a first-time builder.
We also highlighted the client’s personal residential property as additional evidence of financial stability.
2. Emphasising location and market demand
The plots’ proximity to the Royal Infirmary of Edinburgh was a key selling point. We provided market context showing strong sales growth in the area, supported by guidance from the project architect and local estate agents, who confirmed that valuations were realistic at £300,000 per property.
3. Demonstrating project readiness and straightforward execution
The groundwork had already been completed, planning permission was secured (with the second application expected imminently), and the build itself was straightforward. We positioned it as a low-risk, executable project with clear timelines.
4. Conservative LTV and strong security
At 55% of GDV, the loan-to-value was conservative, providing a significant equity cushion for the lender. We offered a 1st charge over the first plot and demonstrated that even if the market softened slightly, the lender’s position would remain secure.
We approached specialist development finance lenders we knew would recognise that retained interest is standard for projects with clear exit strategies.
Outcome: Full build financing
By presenting the full context, we secured £330,000 in development finance to enable the build to proceed. With 12 months of retained interest, the client could focus entirely on delivering a quality build without the pressure of monthly interest payments during construction.
